Jeremy Siegel says Fed Chair Powell still has the 'completely wrong approach'

Published Mon, Mar 27 202310:11 AM EDTUpdated Mon, Mar 27 202310:39 AM EDT

The Federal Reserve's reluctance to cut interest rates this year is a mistake, according to Wharton School professor Jeremy Siegel. Fed Chair Jerome Powell announced during his press conference Wednesday that despite tightening lending conditions from the banking sector crisis, "rate cuts are not in our base case." The comments came after the central bank raised its benchmark rate another 25 basis points, the ninth hike over the past year or so. Siegel said Monday on CNBC's " Squawk Box " that the central bank "basically beat inflation late last year," citing falling prices for commodities, housing and other sectors. He added that Fed policy has been "overkill" on inflation. "I'm just wondering — oh my God, [Powell's] not even thinking about lowering interest rates given what I think the economy is facing under the Fed policy? ... It is a completely wrong approach," he said. The central bank chair said officials expect to keep interest rates at their current high levels, as shown in the Federal Open Market Committee's quarterly Summary of Economic Projections and the "dot plot" of individual members' expectations. "Basically participants expect relatively slow growth, a gradual rebalancing of supply and demand, and labor market, with inflation moving down gradually," Powell said . "In that most likely case, if that happens, participants don't see rate cuts this year. They just don't. I would just say, as always, the path of the economy is uncertain and policy is going to reflect what actually happens rather than what we write down in the SEP. But that's not our baseline expectation," Powell continued. However, Siegel believes that inflation is "absolutely under control," with the economy currently facing a supply-side issue, not an excess of demand. A pandemic-era drop in the labor market has not yet been resolved, Siegel said. "Last November, Chairman Powell himself said there's a structural shift in labor. Well, this is a supply side issue ... [But] supply-side jobs are not something that the Fed is at all designed to handle. They're designed to handle excess demand, not a supply-side shock. So yes, we're going to get a little bit more inflation in that service area, but 60[%] to 70% of the economy is in deflation at the present time," Siegel said. "I am not optimistic about the short run until the Fed says ... we may be asked to pause, see what happens and we may have to lower rates, and they do lower rates," he added. "Their forecast is frightening in the next three quarters — negative GDP growth in the next three quarters ... What they were forecasting was frightening for the economy."